Brexit - Two weeks on and Implications for the UK Energy Sector

12Jul / 2016

Brexit – Two weeks on and Implications for the UK Energy Sector

It cannot be denied that the recent referendum has potential consequences for the long term direction of the UK energy sector. Momentum for developing indigenous resources has been slowed, whilst the country may eventually be released from EU climate change goals to develop renewables. Despite the Brexit vote still bearing down, the past fortnight has revealed some glimmers of hope.

Following the government response to the 2015 consultation on hydraulic fracturing and The National Grid’s ‘Future Scenarios’ report, it is not inconceivable that the trauma of the past two weeks could pave the way for better security of gas supply, whilst retaining our commitment to renewables.

The government took early steps to make clear their commitment to developing native resources whilst protecting UK areas of natural and scientific significance. Last week a response to the consultation held by the DECC at the end of 2015 on Surface Development Restrictions for Hydraulic Fracturing, highlighted government commitment to shale development that is environmentally sound and regulated within strict geographic parameters. It also made clear the potential for shale development to coincide with that of renewables, leading to significant reduction in greenhouse gas emissions and the UK successfully meeting its environmental goals. This swift declaration of appropriate environmental protection whilst recognising the need for shale gas within the UK’s long-term energy strategy is encouraging.

UK primary energy balance

 

The UK’s exit from the EU is likely to lead to an increase in the price of imported energy supplies. Having been self-sufficient in oil and gas from the 1980 to 2004 (see graph), the UK now currently relies on Norway, Russia and Qatar for over 50% of its gas supplies. This figure could reach in excess of 90% without economic growth in domestic gas resources according to ‘Future Scenarios’, an annual report published by the National Grid to stimulate debate and inform investment decisions.

Out of the four scenarios presented by ‘Future Scenarios’, ‘Consumer Power’ relies on 54% of gas demand being met by alternative sources by 2040. The report more importantly suggests that an evolution of gas production is required to supplement existing traditional supplies, including biomethane, shale and hydroelectricity. Shale gas is understood to have one of the smallest carbon footprints of all fossil fuels, putting it in a position to supplement and balance renewable energy while cleaner and alternative energy systems are developed for the biggest problem – de-carbonising the transportation system.  Consequently, shale gas could have a huge role to play in the future development of the UK energy economy.

What makes the capacity for gas production so appealing is its flexibility and reliance on home grown SMEs in the supply chain. Despite predictions that Brexit will result in lower levels of trade and higher tariffs for UK businesses, the size and structure of SMEs, although at similar risk to their larger counterparts, offers some comfort in uncertain times. Smaller teams with shorter chains of command, communicating openly to enable flexible structures and quick turnarounds for customers naturally creates resilience in the face of change. GGS is proud to be a founding member of The Onshore Energy Services Group (OESG), an organisation set up by and for UK SMEs in the onshore energy sector. The role of OESG in stimulating job creation, value for money for customers, and contributing to the British economy has never been more applicable than in the current climate.

As the country holds it’s breath in readiness for more Brexit changes, the potential for UK onshore gas to stimulate home grown industry, assist with the development of renewables and add security to our energy reserves is a comforting reality. GGS eagerly awaits further directives and opportunities to contribute to the UK’s continuing standards and successes.

Read more about OESG and their recent conference here.